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# Question: Christen Granite sells granite counter tops to

Christen Granite sells granite counter tops to the construction industry. Christen Granite has three customers: Homebuilders, a small construction company that builds private luxury homes; Kitchen Constructors, a company that designs and builds kitchens for hospitals and hotels; and Subdivision Erectors, a construction company that builds large subdivisions in major metro suburbs. Following are Christen Graniteâ€™s revenue and cost data by customer for the year ended December 31, 2016:

Operating costs include order processing, sales visits, delivery, and special delivery costs. Christen estimates that revenue and costs will increase as follows on an annual basis:

Required: 1. Calculate operating income per customer for 2016 and for each year of the 2017â€“2021 period. 2. Christen estimates the value of each customer by calculating the customerâ€™s projected NPV over the next five years (2017â€“2021). Use the operating incomes calculated above to compute the value of all three customers. Christen uses a 10% discount rate. 3. Recently, Kitchen Constructors (KC), Christenâ€™s most valuable customer, has been threatening to leave. Lawson Tops, Christenâ€™s fiercest competitor, has offered KC a greater discount. KC demands a 20% discount from Christen if the latter wants to keep KCâ€™s business. At the same time, Christen reevaluates the KC account and anticipates annual revenue increases of only 5% thereafter. Should Christen grant KC the 20% discount? What is the five-year value of KC after incorporating the 20% discount? What other factors should Christen consider before making a final decision? 4. What are the possible adverse effects of caving in to KCâ€™s pressure?

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Kitchen Subdivision Homebuilders Constructors Erectors Revenues \$54,000 \$390,000 \$1,032,000 Cost of goods sold 26,400 216,000 660,000 Operating costs 12,000 90,000 282,000 Kitchen Subdivision Homebuilders Constructors Erectors Revenues 5% 15% 8% Cost of goods sold 4% 4% 4% Operating costs 4% 4% 4%